The Motley Fool

Published Saturday, April 29, 2006

ASK THE FOOL

Decreased Dividends

Q: Do companies ever reduce their dividends? -- W.H., Reading, Pa.

A: They sure do. In the last few months, General Motors cut its dividend in half, and food giant ConAgra reduced its dividend by 34 percent. In 2003, Eastman Kodak slashed its dividend by 72 percent to plow more money into developing digital technology. Companies are extremely reluctant to decrease dividends, though, as cuts are often seen as signs of trouble.

Many companies (especially young ones) pay little or no dividend, preferring to reinvest most of their earnings to help themselves grow. For example, Dell and Amazon.com pay no dividend, while FedEx, CVS and Texas Instruments pay very modest ones.

But strong dividend-paying stocks can turbocharge your portfolio. In "The Future for Investors" (Crown Business, $27.50), Jeremy Siegel reports that an investment in the 10 highest-yielding of the 100 largest S&P 500 stocks would have returned more than 15.7 percent annually from 1957 to 2003, turning a $10,000 investment into more than $8 million. Compare that with an annual gain of 11.2 percent for the overall S&P 500.

For promising dividend-paying stocks, try our Income Investor newsletter for free at www.fool.com/shop/newsletters.

A: The term refers to how companies spend their moolah. A firm can typically do one or more of the following things: Buy back some of its shares on the open market, pay a dividend to shareholders, pay off debt, buy another company, invest the money, or reinvest it in the firm's core business (such as by building a new factory, hiring more employees, etc.). Companies must spend intelligently, though -- buying back overpriced shares, for example, is wasteful.

FOOL'S SCHOOL

Proxy Votes

If you own shares of stock in individual companies (as opposed to through mutual funds), you've probably received proxy voting materials. Many people wonder whether there's any point to voting, since most of us own negligible numbers of shares, compared to the millions (or billions) of shares that exist for typical companies.

Proxy information and voting materials are sent to every shareholder each year, informing them of major issues to be addressed at the firm's annual shareholder meeting. Because institutional investors such as pension or mutual funds often own a majority of shares outstanding, our small votes can be moot. Still, sometimes they do make a difference. Shareholder pressure led to JPMorgan Chase creating its Office of Environmental Affairs, and to Whole Foods supermarkets labeling genetically modified foods. It's good to at least make your preference known, so read the materials and vote.

Here's some guidance, from the Social Investment Forum's Advocacy & Policy Program, which serves as a clearinghouse of information on shareholder advocacy and socially responsible investing:

If you don't understand the issue(s) at hand, seek guidance. The Shareholder Action Network offers some resources, and online discussion boards (such as those at http://boards.fool.com) can help you gather information and opinions, too.

If you don't vote or if you leave your proxy items unmarked, your ballot will automatically be counted as in agreement with management. If you're unsure of an issue, it's better to abstain, which will withhold your vote. Abstentions, unlike blank or unsubmitted ballots, are not cast in management's favor.

If you're invested in a mutual fund or some other kind of investment that doesn't permit you to vote directly, you can find out how the fund's proxies will be voted. Fund companies often offer voting guidelines to help you understand what the fund's positions are on various issues. If you're not offered such information, make a little noise and ask for it.

Click over to www.sriadvocacy.org/proxy.cfm for more resources and information. Also helpful are these Web sites: www.sec.gov/answers/proxy.htm, www.proxyinformation.com, www.corpwatch.org and www.corpmon.com/Vote.htm.

MY DUMBEST INVESTMENT

A Costly Vacation

Our dumbest investment was Pan Am Airlines back in early 1991. Shares were priced quite low because there were problems. I didn't know anything about investing at the time and was in law school. After I took my bar exam, my husband and I went on vacation. We had no way to track the stock while we were gone, nor thought that we needed to. On our return, we learned Pan Am had gone into bankruptcy and the stock had tanked. Being bullish by nature, we hung on and ultimately called it a loss on our tax return a few years ago. I learned a great lesson: Review your portfolio before any extended vacations and, if the company is shaky, put in automatic sell orders if it drops below a certain point. -- Neva Strom, New York

The Fool Responds: It's a good idea to review your portfolio every few months, or at least twice a year, whether you're vacationing or not. Check news reports and quarterly earnings reports for any red flags, such as slowing growth or increasing competition.

FOOLISH TRIVIA

I trace my roots back to 1900 and 900,000 acres of forestland in the Pacific Northwest. My 54,000 employees grow and harvest trees; make, distribute and sell forest products, including logs, wood chips, building products, pulp, paper and packaging products; and engage in real estate construction and development. I'm a leading recycler of office wastepaper, newspaper and corrugated boxes. I plant more than 100 million tree seedlings each year. Based in Washington state, I raked in more than $22 billion last year. Bet you can't spell my name. Who am I?

Last Week's Trivia Answer: Headquartered in Manhattan, my brands include America Online (AOL), HBO, New Line Cinema, the Turner Broadcasting System and CNN. Two out of every three U.S. adults read one of my 150-plus magazines (such as Fortune, People, Money and Sports Illustrated) every month. I serve more than 90 million cable subscribers, and in 2005 my movie division enjoyed worldwide box office receipts of $3.3 billion. AOL, sporting more than 26 million members, sends 2.5 billion instant messages and blocks 1.5 billion spam e-mails each day. I rake in more than $43 billion annually. Who am I? (Answer: Time Warner)

The Motley Fool Take/P>

Sugar Highs

China, India and Brazil boast three of the biggest economies in the developing world. All three nations are simultaneously experiencing a parallel development that puts profits for many food makers at risk.

Recent economic booms in China and India have led to people moving to cities and demanding more of certain goods as their lifestyles change. Meanwhile, agricultural production has decreased, making sugar more of a hot commodity.

India, a huge producer of sugar, is also one of the world's largest consumers of it. Last year, demand finally outpaced production, and India became an importer of sugar. In China, sugar consumption has risen by nearly 50 percent in the past 10 years.

Brazil's economic growth has been slower, but it's pushing hard to make its economy run on sugar -- or rather, ethanol derived from sugar cane. With its governmental goal of having all the country's cars ethanol-capable by 2011, Brazil is likely to consume a lot of sugar.

Sugar prices surged 35.5 percent in 2004-2005, according to the Food and Agricultural Organization of the United Nations. Demand is expected to outstrip supply in 2005-2006 as well, leading to still-higher expenses for makers of soft drinks, candy, cereals and more.